Question

What is an uncertain tax position, and what are the general guidelines for accounting for uncertain tax positions?

Short answer

International Financial Reporting System (or IFRS) is an institution that formulates the reporting standard for each organization to work universally by reporting each financial transaction.

Step-by-step solution

Introduction to uncertain tax position

An uncertain tax position is a term that depicts the uncertainties faced by an organization where the income tax items that has to be claimed or have been already claimed under the income tax filing authority. It arises due to any mishap or contingency that affects the organization's income tax expense.

General guidelines under the uncertain tax positions

The general guidelines as per the IFRS for the uncertain tax position involves following two steps

(1) Recognition

(2) Measurement

Recognition: It involves recognizing the actual tax position of the firm using the MLTN threshold test, i.e., more likely than not. It helps the organization ascertain its tax position according to the technical merits.

Measurement: It involves measuring the income tax benefit arising from the MLTN test. If the measurement is more than 50%, the tax authority is more likely to realize the amount.